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Brazil: Provisional Measure No. 692/2015: creation of progressive rates for income tax levied on capital gains and amendments to the program to reduce tax litigation (“PRORELIT”)

Provisional Measure No. 692/2015 was published on September 22nd, 2015, with the purpose of implementing two points of the fiscal adjustment program intended by the Federal Government, namely: (i) creation of progressive rates for income tax levied on capital gains and (ii) reduction of tax litigation and anticipation of collection of taxes by postponing the deadline for accession to the PRORELIT and reducing the minimum cash payment required.

In relation to income tax levied on capital gains, the Provisional Measure changed Section 21 of Law No. 8,981/1995 and established progressive rates ranging from 15% to 30%, levied on the capital gains earned by individuals as a result of the disposal of assets and rights of any nature, as detailed below:

15% of the amount of capital gains that do not exceed BRL 1,000,000.00;

20% of the amount of capital gains that exceed BRL 1,000,000.00 and do not exceed BRL 5,000,000.00;

25% of the amount of capital gains that exceed BRL 5,000,000.00 and do not exceed BRL 20,000,000.00; and

30% of the amount of capital gains that exceed BRL 20,000,000.00.

In addition, Section 2 of the Provisional Measure provides that the same rates should also be applied when calculating income tax levied on capital gains earned as a result of the disposal of non-current assets by legal entities that are not subject to the taxable income method, the estimated profit method or the arbitrated profit method.

Regarding the PRORELIT, the deadline to opt for the inclusion of debts in the program was postponed to October 30th, 2015, and the minimum cash payment required was reduced from 43% of the consolidated value to the following percentages:

30% of the consolidated value, in case of full payment until October 31st, 2015;

33%, in case of payment in two installments – the first one until the last business day of October and the second one until the last business day of November of 2015; and

36%, in case of payment in three installments – the first one until the last business day of October, the second one until the last business day of November and the third one until the last business day of December of 2015.

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